Global Conflict: Dark clouds of crisis on government treasury! 1 lakh crore hit due to Iran War; Now the people have to compensate?
- Dark clouds of crisis on the government treasury!
- 1 lakh crore hit due to Iran War
- The public will have to compensate?
Fiscal Deficit: Even though the war is going on between Iran and the US, it is also affecting India. Business Monitor International, a subsidiary of global rating agency Fitch Solutions, said in a recent report that India’s fiscal deficit could exceed its budget targets due to pressure on public finances due to government policies in the wake of the West Asian conflict. The deficit is estimated to reach 4.5 percent of GDP. This research institute said that the country has to spend extra due to this war.
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Important policies should be implemented
The government has presented the budget with a fiscal deficit target of 4.3% of GDP for the financial year 2026-27. This is slightly lower than the revised estimate of 4.4% for FY 2025-26. To deal with disruptions caused by conflict in West Asia, BMI expects governments to implement policies such as diverting significant resources to key industries, controlling business costs and increasing financial support for companies.
Government can impose restrictions on exports
According to BMI estimates, the government may also ban exports of rare raw materials such as helium and sulfur, which are used in the manufacture of semiconductor chips. Sulfur is an important ingredient in fertilizer production, so the government will try to minimize disruption to the agriculture sector, which employs 43 percent of India’s workforce. According to a latest report, fertilizer production fell by nearly 25 percent in March, the worst performance in five years.
1 lakh crore burden on the government
The central government has set up a financial stabilization fund of Rs 1 lakh crore to stem the rise in costs for businesses affected by the closure of the Strait of Hormuz. This means, an additional burden of approximately Rs 1 lakh crore has been placed on the government due to the Iran war. As per BMI estimates, it will account for 0.1 per cent of GDP in fiscal year 2026-27. The Strait of Hormuz is a major seaway through which approximately 20 percent of the world’s natural gas and crude oil passes.
What are the disadvantages of increasing fiscal deficit?
If you think that the rising fiscal deficit only affects the government, you are wrong. This increases the country’s debt burden and creates inflationary pressure. Banks are also forced to raise their interest rates, threatening financial stability and slowing growth. A growing fiscal deficit also affects a country’s credit rating, which ultimately affects its citizens.
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